Main Menu
Print PDF

Fair Labor Standards Act: An Employer’s Ability to Effect an Early Settlement?

Labor and Employment Newsletter | March 18, 2014
By: Stephanie A. Kobal

The Fair Labor Standards Act of 1938, as amended (FLSA), establishes minimum wage, overtime pay, and record keeping standards affecting employees in the private and government sectors. The FLSA requires that covered non-exempt employees receive overtime pay for any hours worked in excess of 40 per work week at one and one-half times the employee’s regular rate of pay. The FLSA permits employees to file a lawsuit on their own behalf and on behalf of other “similarly situated” employees. Although Courts make a fact-specific inquiry into whether an employee is “similarly situated,” generally, employees are “similarly situated” if they are subject to common policies, plans, or designs. This means that one employee can file suit, and other “similarly situated” employees may “opt in” to the suit at a later date. This is known as a “collective action.”

Traditionally, Courts have placed strict limitations on when and how claims under the FLSA can be settled. Courts have found that an individual waiver of an FLSA claim would undermine the FLSA’s deterrent role and held that an individual cannot release his or her right to liquidated damages. As a result, employers have been reluctant to voluntarily settle FLSA claims.   

In April, 2013, in Genesis Healthcare Corp. v. Symczyk, the Supreme Court of the United States addressed the issue of whether a collective action becomes moot when the lone plaintiff receives a complete offer of judgment prior to the time that any “similarly situated” employees “opt in” to the suit.  This decision will likely alter the settlement of FLSA suits.

In Genesis, the plaintiff brought a collective action suit alleging violation of the FLSA on behalf of herself and all similarly situated individuals. Genesis served the plaintiff with a complete offer of judgment.  Although the plaintiff did not dispute the adequacy of the offer, she failed to respond. Thereafter, Genesis filed a motion to dismiss the suit on the basis of lack of subject matter jurisdiction.  The District Court for the Eastern District of Pennsylvania granted the motion to dismiss, and the Court of Appeals for the Third Circuit reversed.

The case was appealed to the Supreme Court, which held that the plaintiff had no personal interest in representing the unnamed “similarly situated” employees, nor any other continuing interest that would preserve her suit from mootness, thus, dismissing the case.  Even more significant is what the Supreme Court did not address; that is, whether the plaintiff’s individual claim became moot following the offer of judgment.  The Supreme Court “assumed, without deciding, that this is correct.”  Thus, whether an offer of judgment will moot a collective action is likely to depend on the Circuit Court in which a case is pending, and it is probable that each Circuit will adhere to its own prior precedent until the Supreme Court takes up the issue again.

The Genesis decision has been heavily litigated since April. Not surprisingly, new questions regarding FLSA settlements have arisen. One question that the Third Circuit has noted, but not decided, is whether a plaintiff’s interest in representing other opt-in collective-action plaintiffs satisfies the personal-stake requirements of the Constitution when the initial plaintiff has settled his or her claim. Due to the technical nature of the FLSA and the interpretation of the statute and its regulations, employers are encouraged to consult with counsel on specific issues. 

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation and legal questions.
Back to Page